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Just risk and expected returns?

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Pension schemes have a stream of liabilities to meet, which often require growth in capital before they can progressively transition to become chiefly income-generating asset pools, there to meet a defined set of liabilities. But wouldn’t it be good if throughout this journey, the assets could not only meet the payments required by scheme liabilities but also achieve something else worthwhile?

It can be taken as read that investments offer an expected return, as they serve a profit-driven purpose within markets. But often – and indeed increasingly – there is some intent that a little more can be done: that capital can be directed to build something of immediately recognisable value, in a manner that considers a wider range of stakeholders and the environment in which the investment is set. Thus the intent can be more nuanced and multi-faceted than a strictly numbers-driven investment projection.

At Buck we are also seeing many opportunities to do well by doing good, as this trend continues to permeate the industry. There has been a notable rise in ESG awareness in recent years, but how genuinely integrated into idea generation is it? How integrated is it into setting forecasts that include costs beyond those determinable in hard $,€ or £?

In the past few years, more thought leadership discussions have been around investments that can generate a return for schemes, but also with an income component that becomes more significant as cashflow becomes a bigger driver of investment decisions. Income capture and the timing of asset sales in potentially volatile markets are important considerations.

Beyond these requirements, there are more opportunities for trustees to be aware that whilst they are setting plans to meet the needs of the scheme, they are also meeting a societal need. They are providing long-term sustainable capital. This could provide better communication networks to local communities, or the substitution of fossil fuels with renewable energy, to name just some examples. In our rapidly changing world, there could still be opportunities with wider purposes that have yet to be made available to pension scheme investors. Who knows where the next one lies?

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